UCPB sells P11.9B worth of NPLs

United Coconut Planters Bank (UCPB) has successfully sold some P11.9 billion worth of non-performing loans (NPLs) to an affiliate of Amroc Investments Ltd., one of the world’s biggest investor in distressed debt and recovery.

Beating the April deadline for the incentives available to banks unloading their bad loans and bad assets, UCPB held its auction late Friday and sold the entire block of NPLs to Avenue Asia Special Situation Fund III, a fund pool affiliated with Amroc.

UCPB president Jose Querubin disclosed yesterday that the transaction is expected to be approved by the UCPB board of directors today, after which the bank would apply for incentives under the provisions of the Special Purpose Vehicles Act (SPVA).

Querubin said the agreement would be formally signed today between UCPB and Amroc which had agreed to pay an initial down-payment equivalent to 20 percent of the total price.

"The remaining 80 percent will be paid within 60 days of the signing of the agreement," he said.

Avenue Asia is under the Avenue Capital Group, a fund manager that has been operating in the Southeast Asian distressed markets since 1999.

Company profile indicated that the Fund is led by its principals, Marc Lasry, Sonia Gardner, and Malcolm Robinson, who have 45 years of aggregate investment experience in the distressed debt markets in Asia and the US.

The principals manage approximately $850 million in Asian distressed debt, through two Asia-focused hedge funds and two closed-end institutional funds – Avenue Asia Capital Partners, L.P. and Avenue Asia Special Situations Fund.

According to Querubin, the bulk sale of its NPLs would put UCPB right on the track of its turn-around program since the bank went under rehabilitation in 2003.

"We hope to get tax incentives and the 10-year deferment for the booking of losses arising from selling these NPLs at a discount," Querubin said.

Saddled with about P18 billion worth of NPLs, Querubin said this single transaction would whittle down the bank’s bad loans portfolio to a little over P6 billion.

Before the end of the year, Querubin said UCPB plans to remove between P2 billion and P3 billion more from its portfolio of bad assets to bring the total ratio further down.

"These remaining loans that we hope to be able to address would be either restructured, collected or converted," Querubin said. "By the end of 2005, we would have cleaned up our NPL portfolio to an acceptable level."

Querubin declined to disclose the discount rate agreed upon by the parties but under the law, special purpose vehicles like Avenue Asia were allowed to buy bad loans and bad assets from banks at a discounted price.

The banks would have to take a haircut arising from the discount but the law allows them to book these losses over a 10-year period so that their balance sheets would be able to better support the losses.